In the recent past, we have witnessed that the demands for the establishment of a bitcoin exchange-traded fund are growing exponentially. More and more proposals are being presented in front of the United States Securities and Exchange Commission with each passing day. As of yet, not even one of all the proposals has been approved by the SEC. The reasons behind the rejection presented forward largely being manipulation and fraudulent activities. But why is there so much demand anyway? Why most of the crypto enthusiasts are demanding a crypto-linked exchange-traded fund as soon as possible?
The answer, ease of access and exit without buying the actual digital asset.
Exchange-traded funds across the world provide the buyers the access to assets or commodities which are otherwise difficult to access or buy. ETFs make it easier for the investors to invest in an asset without actually buying or selling it directly. For a bitcoin ETF, the major demand is coming from the institutional investors. The reason behind it simply being the ease of access to the digital asset. Institutional investors simply want a hands-off access to the cryptocurrencies.
With a bitcoin ETF established, investors can simply buy the shares of the asset without direct involvement. After buying the shares, the price of the asset can go up or down. In this way investors can speculate when the price is going to rise or fall and can buy or sell the shares accordingly. The market of cryptocurrencies is already filled with volatility and unpredictablility. Digital currencies are not yet accepted on a greater scale by major institutional firms due to these reasons and in order to build up a large scale institutional support, the demand for a bitcoin ETF is rising up.
Despite seeming like the future, major institutional spearheads hold back from directly buying digital assets. As of now, there are a lot of manipulative and fraudulent activities that are prevalent in the digital currency world. Institutions want the ease of access and exit when it comes to volatile world of cryptocurrencies, and a crypto-linked ETF seems to be a viable way for the investors to enter this market, and hence the rising demand.
But despite the demand, the SEC has been hesitant in its approval of a crypto-linked ETF. In January, the concerns raised by the regulatory body regarding the establishment of a crypto-linked ETF were valuation, liquidity, custody, arbitrage and potential manipulation and other risks associated with the market. These concerns first need to be resolved before the regulatory body takes any action. There is a lot of buzz around the crypto space that the crypto market is heavily prone to manipulation by big whales around. With this manipulation present, these whales can use the market in their favor as soon as the ETF gets established. Concerning manipulation, it was stated by the regulatory body that:
The Commission has also discussed concerns relating to the risk of fraud and manipulation in cryptocurrency markets in orders denying exchange proposals to list the shares of commodity trusts that would hold cryptocurrency. In addition, a number of recent media reports have highlighted a range of possible vectors for potential manipulation of cryptocurrency markets. Although some funds may propose to hold cryptocurrency-related products, rather than cryptocurrencies, the pricing, volatility and resiliency of these derivative markets generally would be expected to be strongly influenced by the underlying markets.
In a nutshell, its the institutional drive that is heavily steering the demand for a bitcoin exchange traded-fund. With this, money that is still sitting on the sidelines will flow into the market making it more stable as compared to before. Also, the ease of access and exit will also attract investors who want to enter the game of cryptocurrencies but at the same time do not want to buy or sell the digital assets directly owing to the volatility that they present forward. So, in order to provide a more viable ecosystem to the investors, the demand for a crypto-linked ETF is on the rise.